Rachel Reeves UK Budget 2025 : a critical view of the Autumn Budget 2025 and what it really means for Britain’s inequality

Britain has spent four decades building an economy that flatters wealth and disciplines wages. The new Budget does not reverse that settlement, yet it marks a turn. The largest single revenue raiser is still a long freeze on income tax and National Insurance thresholds, which will drag millions of workers into higher bands. Around that, however, the Chancellor has begun to target property, dividends and rentier income, while finally ending the two child limit in benefits.

For a country that has sold itself as a polite tax haven with a flag, this matters. The United Kingdom is not only a financial centre in the normal sense. It sits at the centre of an offshore archipelago stretching from the City of London through the crown dependencies to the overseas territories. That network has been described in detail by Nicholas Shaxson and others: a chain of jurisdictions that offer secrecy, light touch rules and routes for wealth to escape the obligations faced by ordinary taxpayers.

Treasure island Britain meets the numbers

Official data show what that model has produced. The Office for National Statistics calculates that median household wealth in Great Britain in the period from April 2020 to March 2022 was just under three hundred thousand pounds. Above that median lies a cliff. The wealthiest ten per cent of households had at least about one point two million pounds each, while the least wealthy ten per cent had sixteen thousand pounds or less. For the top one per cent, total wealth ran into several million per household.

Wealth is more concentrated than income. The Gini coefficient for wealth is close to sixty, far higher than the figure for disposable income. Studies for the Joseph Rowntree Foundation and the World Inequality Lab estimate that by 2021 the top ten per cent of people in the United Kingdom owned around fifty seven per cent of all wealth, while the bottom half owned less than five per cent. In practice that means a country where property, pension pots and financial portfolios at the top dominate the economic landscape, while millions at the bottom have almost nothing to fall back on.

It is against this background that Reeves’s moves on high value property and investment income should be read. They are not radical. They do not match the scale of the imbalance. But they break with the reflex that every serious tax rise must land on wages, consumption or public services, while unearned gains are treated as almost untouchable.

Taxing wealth a little more seriously

The Budget’s largest revenue measure is stealthy. By holding income tax and equivalent National Insurance thresholds flat until 2031 while nominal wages rise, the Treasury will pull many more people into basic and higher rates, and lift many workers above the point at which they start to lose allowances. On the official scorecard, this single decision raises more money than any other line in the Budget by the end of the decade.

Around that stealth move, though, are targeted changes that strike closer to the summit of the income and wealth ladder. A new levy on homes valued at more than two million pounds, built into the council tax system, will add several thousand pounds a year to the bills of owners at the top of the property market. The dividend tax rate and the rate on property income and savings income are being lifted by two percentage points for most taxpayers. The official justification is straightforward: these streams have enjoyed lighter treatment than earned income, not least because they escape National Insurance.

For small savers, the effect will be limited. Personal allowances on savings remain, and ordinary people with modest portfolios will still pay little or nothing on small amounts of interest. The real hit falls on those who live on investment income, on multiple buy to let properties, and on corporate structures designed to turn what would once have been wages into lightly taxed distributions. This is the group that has quietly benefited from the old settlement, in which labour was squeezed while capital glided through legal gaps.

Children, poverty and the end of the two child rule

If the tax changes modestly rebalance who pays, the decision to scrap the two child limit changes who is punished. Introduced in 2017, the rule restricted support in the main working age benefits to the first two children in a family. It was sold as a way to ensure people who depended on benefits would make the same choices as those in work. In reality, many families hit by the cap were already working, and the effect was to push hundreds of thousands of children deeper into poverty.

Charities, churches and professional bodies have spent years calling for the rule to be scrapped. The Joseph Rowntree Foundation and others estimate that nearly half a million children are locked in poverty because of the limit. The Budget now lifts it. The Office for Budget Responsibility expects the change to cost a little more than three billion pounds a year by the end of the forecast period. Set beside the revenue from the threshold freeze and the new taxes on wealth and investment income, that is a deliberate choice to use some of the proceeds from the top to relieve pressure at the bottom.

Symbolically, ending the cap matters as much as the pounds and pence. It says that the state will no longer try to influence family size by cutting support after an arbitrary limit that never applied to the wealthy. For a government that still insists on fiscal discipline, choosing to spend on these children rather than on new concessions to the affluent marks a small but clear break with the logic that has guided welfare policy since the financial crisis.

Britain as service provider to the world’s fortunes

The Budget takes these domestic steps while leaving the wider offshore system largely intact. The United Kingdom remains a central route for global money of all kinds. A recent intervention by a minister confirmed that close to forty per cent of the world’s dirty money is thought to move through London and the crown dependencies. Chatham House and other researchers have long described the country as a comfortable home for kleptocratic wealth, thanks to its deep financial markets, discreet service industries and permissive rules on company formation and property ownership.

Estimates from law enforcement bodies suggest that more than one hundred billion pounds is laundered through structures linked to the United Kingdom each year. Non governmental organisations have tracked billions of pounds of suspicious funds flowing into British property since the middle of the last decade, much of it routed through shell companies registered in overseas territories. An earlier analysis by the Financial Times, cited by the Tax Justice Network, found that at least one hundred and twenty billion pounds of property in England and Wales was held through companies in recognised tax havens.

This is the other face of inequality. At the top, wealth can be moved, hidden and protected with professional care. At the bottom, income is visible and inescapable. Pay slips are taxed at source. Benefits are scrutinised and reclaimed for small errors. Councils and agencies chase minor arrears while billions slip through secret ownership structures. The Budget edges toward closing a little of that gap by raising the effective tax rate on some of the returns from wealth, but the deeper system remains largely untouched.

A small correction to a tilted system

Taken together, the Budget’s measures are not a revolution. The threshold freeze is still a blunt and regressive way to raise money. Many middle income households will feel squeezed as pay rises pull them into higher bands without any visible political decision to increase rates. Small business owners and modest landlords will argue, with some justice, that they are being caught alongside people with far greater assets.

Yet two features mark this Budget out from its predecessors. First, it makes a conscious move to ask more of those who have gained most from the last generation of policy. Properties worth more than two million pounds, portfolios that generate large dividend streams, and structures that convert labour into lightly taxed investment income will all contribute more to the Exchequer. Second, it chooses to spend a notable part of that revenue on the people who were most directly harmed by a punitive welfare rule, rather than on new reliefs for capital.

The deeper question is what comes next. A state that is serious about tackling inequality will have to do more than introduce modest surcharges and tidy away its most obviously cruel rules. It will need to confront the offshore network that surrounds the City of London, enforce transparency on beneficial ownership, and challenge the idea that Britain’s place in the world is to act as a discreet custodian of other people’s fortunes. This Budget does not do that. It does something smaller but still important: it acknowledges that the old order is running on borrowed time, and it begins, cautiously, to send the bill to those who have sat at the top.

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